Xbox Handheld Delayed as Microsoft Backs ASUS Project Kennan

Microsoft has paused development of its internal first-party Xbox handheld console to shift focus toward optimizing Windows 11 for gaming on third-party handheld devices, according to internal company sources familiar with the matter.

Although Microsoft remains committed to handheld gaming, immediate attention is now on enhancing the Windows 11 experience across partner-made devices such as ASUS’s "Project Kennan," which is reportedly nearing its commercial launch. Contrary to earlier speculation, this change in direction does not affect the development timeline of the Xbox Series X successor, which continues on schedule.

Sources indicated that Microsoft had multiple hardware prototypes under the Gen-10 program, including a native Xbox-branded handheld. While codenames like "Pembrooke" were initially associated with this device, clarification suggests those details may be inaccurate. As of now, that device has been put on hold as the company reprioritizes engineering resources.

This shift reflects a broader internal strategy to address competitive threats posed by platforms like Valve’s SteamOS. SteamOS, currently gaining traction on devices like the Steam Deck and now available for the ASUS ROG Ally and Lenovo Legion Go, has been noted for improved battery efficiency and gaming performance compared to Windows 11.

Microsoft’s new emphasis centers on third-party OEM handhelds running Windows 11. The most prominent among these is the ASUS-manufactured "Project Kennan." Although unconfirmed, it is believed to feature AMD’s new Z2 Extreme chip and is expected to release later this year.

Work is intensifying between Microsoft’s Xbox and Windows development teams to improve software optimization, particularly for handheld devices already using standard Windows 11 environments. Enhancements to Xbox app integration, performance tuning, and input compatibility are all part of the roadmap.

SteamOS’s rapid adoption and performance metrics have sparked internal urgency at Microsoft. With Valve’s ecosystem supporting seamless integration and lower system overhead, the appeal of non-Windows platforms is growing, especially among handheld gaming enthusiasts.

At the same time, Microsoft continues to invest in its cloud gaming initiatives. Next-generation Xbox cloud architecture is currently in testing, aiming to reduce latency and compete directly with NVIDIA’s GeForce Now. A previously shelved cloud-first console codenamed "Hobart" is not expected to return, but cloud infrastructure remains a strategic pillar.

Microsoft’s upcoming Xbox Showcase, set for June 8, 2025, will highlight new software offerings and content from its network of game development studios. While hardware announcements may take a backseat, the company’s strong content library and Xbox Game Pass momentum remain core strengths.

Despite the shift in short-term priorities, Microsoft is not abandoning handheld ambitions altogether. Internal investment in native Xbox handheld technology continues, albeit at a slower pace. No job cuts have occurred due to the reprioritization.